GSP suspension gauged to cost $19m in losses

GSP suspension gauged to cost $19m in losses

147 items entered US duty-free in 2019

The government insists the suspension of preferential trade benefits for certain Thai products by the US under the Generalized System of Preferences (GSP) is estimated to cause losses of only US$19 million or 600 million baht.

"Of the 231 products facing the US's GSP cuts, only 147 items were found to actually exercise the US trade preferences in 2019," said Foreign Trade Department director-general Keerati Rushchano. "These preferences were worth about US$19 million, if converted into the new tariff rates [3-4%] they have to pay."

GSP, the largest and oldest US trade preference programme, is designed to promote economic development by allowing duty-free entry into the US for 3,500 products from the 119 designated beneficiary countries and territories.

To remain eligible for these advantages, beneficiary countries must comply with 15 statutory eligibility criteria, including taking steps to afford internationally recognised worker rights, providing adequate and effective protection of intellectual property rights and assuring equitable and reasonable access to markets.

According to The US Trade Representative's (USTR) "GSP Enforcement Action, Country Successes, and New Eligibility Reviews" dated Nov 2, 2020, despite 12 years of bilateral engagement, Thailand has yet to provide the US with equitable and reasonable market access for pork products, as outlined in a 2018 petition from the National Pork Producers Council requesting removal of GSP benefits. GSP eligibility will be revoked for approximately one-sixth of Thailand's GSP trade, representing $817 million in US imports under the GSP programme in 2019. The decision is effective from Dec 30, 2020, and will close the review of Thailand.

According to Mr Keerati, products that will be affected include auto parts such as steering wheels, wheels and transmission boxes, plastic glass frames, certain chemical products and rubber or plastic bedding.

"In a move to alleviate the blow, the Commerce Ministry is consulting the USTR to find solutions, while helping expand the market both in the US and finding new markets for the affected products," he said.

"The ministry pledges to organise marketing activities for them in various formats such as online business matching focusing on products that are in high demand in the US, and new markets and roadshows as well as cross-border e-commerce."

Mr Keerati warned over the next 5-10 years the US may no longer grant GSPs on products from Thailand or any other country.

Thai operators need to accelerate upgrading their quality and branding to compensate for losing out in price competition.

Aat Pisanwanich, director of the Center for International Trade Studies at the University of the Thai Chamber of Commerce, said while some may see the US's GSP cuts as politically motivated, Thailand cannot ignore such trade issues. No matter who wins the US presidential election, the demand for market access for US pork and pressure on human rights issues may be raised again in the future.

"In the event that Mr Trump is the victor, we expect such issues will become more intense," said Mr Aat.

The Federation of Thai Industries (FTI) expects Thailand is likely to face only a short-term impact caused by the US decision to suspend preferential trade benefits for 231 Thai products under the GSP scheme.

"Sooner or later, the US will suspend the GSP for Thailand," said Supant Mongkolsuthree, FTI's chairman, adding Thailand has long enjoyed a trade surplus with the US.

"We are not surprised by the move," he said yesterday. "In fact, the GSP suspension may reflect that Thai industry is becoming stronger."

Mr Supant said he does not believe the US's GSP cuts will hurt the domestic economy, which is reeling from the pandemic.

FTI suggested affected exporters seek new markets, adjust their businesses and manage operation costs to better match changing global trade.

"Thai exporters have at least two months to make adjustments before the GSP suspension takes effect," said Mr Supant.

The FTI called on the government to prevent baht fluctuations as this will help support the export sector. The appropriate currency rate should be 32 baht to the US dollar, it said.

Pinai Sirinakorn, chairman of the auto parts industry club under the FTI, is assessing the exact impact on auto parts makers.

"The club expects it will not cause serious impact to the auto parts industry because the US is not the main market for exporters," he said.

Japan and Asean countries are Thailand's major export markets, said Mr Pinai.

Original equipment manufacturers in the auto parts industry supply 80% of the products to global carmakers. The remaining 20% are sold in the automotive after-market.

Around 60% of the products are sold domestically, while 40% of are exported.

Among the exports are car tyres, also under probe from the US Department of Commerce, following an accusation they were dumped in the American market.

If the department determines Thailand dumped tyres, it will raise duties on the products.

FTI believes the anti-dumping investigation is a result of the protracted US-China trade war.

Chinese companies use Thailand as an export base for products ranging from tyres, processed foods and other rubber products.

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